Imagine this. You arrive at work one morning, brew a coffee, tune into your regular newsfeeds, and discover a new company in your field has been steadily growing to become a major competitor. A little more research, and you discover their director is your previous director. It turns out she only incorporated her new company six months before her resignation. Now you know why she left. Can’t be fair, can it?
You scramble to find the contract signed with her when she resigned. Phew! She specifically agreed not to compete or solicit clients for a period of time. Lucky you – it pays to think ahead.
You know that often the courts refuse to enforce restrictive covenants – apparently restraining someone else’s right to trade is against public policy. You assume that that argument will not succeed here. But what about damages? The director has been making all this profit she should not have been making – what can be done?
Well, this situation is somewhat similar to a very recent case at the Court of Appeal: Morris-Garner v One Step Ltd. And it’s good news for employers. The court awarded the amount that the company might reasonably have demanded from the director for her release from the covenant before its breach: so called “Wrotham Park damages”. There are still hurdles to cross to get this award, but it had been seen as a highly exceptional remedy. It might become more common.
Don’t assume, however, that all will be plain sailing. In another case around the same time, the High Court refused to enforce a restrictive covenant (Bartholomews Agri Food ltd and Thornton). The clause was drafted badly, and was far wider than necessary. Moreover, when the clause had been agreed 18 years previously, the employee was only a trainee. That was the relevant time, and it was absolutely unreasonable then. So three action points flow from these cases:
1. Draft your restrictive covenants carefully;
2. Review them regularly; and
3. Don’t be afraid to try to enforce them.
The decision takes a fundamentally liberal approach to Wrotham Park damages, which will encourage litigants to claim them where once they might have been seen as a long shot.